Ed Balls has called for an emergency tax cut - urging the Government to reduce
VAT temporarily to “kick-start” economic recovery.

The shadow Chancellor accused George Osborne of risking permanent damage to the economy by pressing ahead with stark austerity measures.

VAT - of Value Added Tax - is charged on most consumer goods apart from books, newspapers, children’s clothes and food. It went up from 17.5 per cent to 20 per cent from January.

Mr Balls said that reversing this rise – at a cost of £13billion a year - would help to stimulate consumer spending, bring down inflation and boost job creation.

In his first major speech on the economy since being appointed shadow Chancellor, he said: “The question is not the cost to George Osborne of paying for this temporary emergency tax cut, but the price our country will pay if he carries on regardless.

"Slowing down the pace of deficit reduction with a temporary VAT cut now would give the flat-lining economy the jump start it so urgently needs, boost jobs and be a better way to get the deficit down for the long term.”

Cutting VAT would be the quickest and easiest way to make the biggest impact on the British economy.

He said: “He can reverse it from 20 per cent to 17.5 per cent immediately and it has an immediate impact on people's purchasing power and the bottom line of businesses.”

Mr Balls told an audience at the London School of Economics that the Chancellor was “keeping his fingers crossed and stubbornly ignoring the economic evidence” that his plan is not working.

He compared the Chancellor’s refusal to consider introducing a “plan B” for the economy with the Conservatives’ ill-fated decision to join the European Exchange Rate Mechanism (ERM) in the 1990s.

Mr Osborne’s economic policy was little more than a “political gamble” based around a “fixed political strategy to win an election in 2015”. Mr Balls said it was “total fiction” to blame the deficit on Labour’s failure to regulate the banks when it was in power.

Labour was “culpable” for mistakes for which it should apologise in its time in power, such as the failure to regulate banks more tightly. But he added: “The charge that Labour's profligacy and waste in spending caused the deficit or caused the crisis is just not true.”

Mr Balls took a swipe at the International Monetary Fund (IMF), which last week gave its approval to the Government's deficit-reduction strategy.

The acting head of the IMF, John Lipsky had been among experts backing Britain’s continued ERM membership in 1991, he said.

Mr Balls also warned that the UK was beginning to travel down the same path to economic disaster as countries such as Greece, Ireland and Portugal. He said: “My concern is that we are starting to see the same thing happen here in Britain.”

Conservative Party deputy chairman Michael Fallon criticised Mr Balls for choosing to “personally attack the head of the IMF”.

He said: “Not only is he defying his own leader in refusing to accept responsibility for the mess that Labour created, he is now attacking anyone that disagrees with him.

“Ed Balls’ Plan B of increased spending and unfunded tax cuts at a time when we have a similar deficit to Greece and Portugal looks like a plan for bankruptcy.”